tv Nightly Business Report PBS July 23, 2012 4:30pm-5:01pm PDT
>> this is n.b.r. >> susie: good evening. i'm susie gharib. new worries about a spanish bailout as several of the country's regions teeter on collapse, driving a triple digit loss for the dow. >> tom: i'm tom hudson, "n.b.r."'s diane eastabrook joins us to talk mcdonald's; from earnings to europe and rising food costs, the outlook for the fast-food giant. >> susie: and we kick off a week long look at cyber security, focusing on the big business of protecting you online. >> tom: that and more tonight on "n.b.r."!
>> tom: stock markets around the world staged a sharp sell off today, led by losses in europe. fears continue building that spain might need a full-scale bailout. here in the u.s., stocks sold off early, but pared back the loss by the closing bell. the w tumbd 10points, it had been down, as much as, 240 points earlier in the session. the nasdaq lost 35, the s&p was down 12 points. erika miller reports spain's troubles now include the country's regional governments. >> reporter: valencia, spain has long been known for two things-- paella and its large port. but lately spain's third largest city has garnered unwanted attention as the first spanish region to seek a bailout. six others are in danger of following suit. >> it's worrisome, in the sense if they start to line up for bailout money from the national government, which is itself very strained, financially, then there could be a bailout needed from the european partners sooner than expected,
previously. >> reporter: and that's why spanish borrowing costs have shot up to record levels. the country's ten-year bonds are yielding 7.5%, raising the risk it won't be able to afford to borrow in public markets. if spain needs a bailout, there will surely be ripple effects around the globe. >> it affects the eurozone economy. and the eurozone is a very large trading partner of the united states. so, if you are a u.s. investor, the prlems in europe are going to have an affect on your returns and we're seeing that in weak equity markets. >> reporter: the crisis in europe appears to be escalating. although spain is currently in the spotlight, it's far from the only concern. investors are also growing more worried about italy, because sicily is on the brink of economic collapse. erika miller, "n.b.r.," new york. >> susie: still ahead, this canadian oil firm, has a new owner: china's biggest oil company. we look at what it means for global oil markets. "nightly business report" is brought to you by:
captioning sponsored by wpbt >> susie: so what spooked investors today? joining us now to talk more about the european financial crisis, andres garcia-amaya.. global market strategist at j.p. morgan funds. thanks for coming to us. what's the real danger in europe now? >> well, the interesting thing is the last two weeks, the market went from focussing on the macrostory to the microstory, basically looking at earnings which actually have been better than expected, hence the market kind of grinding up higher. now, on friday as earlier you're mentioning in your program, valencia, one of the regions in
spain is basically asking for a bailout from the larger spanish government. this is nothing new. if you just look back acouple of months back, one of the largest banks in spain, b bancia was partially nationalized. the markets in essence had just switched gears and foe kiss on the micro, and are looking back and realizing that the situation in spain has really not been resolve and we're dealing with the same structural issues we have been for the last couple of years. >> susie: you know, investors everywhere knew the situation in europe is not over and i think what's really worrying everybody is that the view that spain got this big bailout on friday, and now there was a lot of talk today at spain might have to close some of its banks. the question is, what is the risk of that to the rest of europe and what's the risk to the u.s.? >> well, there is definitely a risk. when you think about banks, they are truly the transmission mechanism that could affect what's happening in europe, to what's happening here in the united states, and if you look
at some of these regions in spain, while they're regional depth is held by regional banks do a fair amount of business globally. that's the transmission mechanism that could affect not just obviously other european countries but here in the united states. now, 4 structurally what they e to do is try to create a firewall around the issue so european banks don't really affect other banks around the world. that's to be said and to be determined, i don't think in months but rather years, so that we do expect volatility to continue base on what is happening in europe. and having said that, i do believe that the u.s. has been pretty resilient to what's happening in europe and we expect the u.s. economy to actually continue to grow although at a very slow pace. >> all right, well, with the global selloff today, it just appears that equities are not a good idea, no mter where you look, or i guess the contrarian view is have prices gotten so low that there might be some bargains out there for an adventurous investor, what do you i think? >> we do believe there are
opportunities, especially if you are long term investor. right now, we favor u.s. equities rather than international, as i mentioned earlier. the u.s. economy has been fairly resilient to what's happening in europe. as well as the u.s. equity markets which have outperformed european equities. we expect that to continue. especially, we would like to favor high dividend yielding stocks in a world where it's very hard to get income where the 10-year bond in the united states is yielding 1.5%. >> susie: real quickly in 20 seconds, what happens next on the european financial crisis. what should investors be watching out for? >> i think the next step is to watch what leaders do? as markets flare up, the good news is that it forces them to make tough decisions which is what we need to see in the months to come in trying to integrate banking, fiscally and politically, the european unio >> sus: all right, leave it there. andres thanks a lot. andres garcia-amaya, global
market strategist at skrchlt p morgan funds. >> tom: the slowing global economy is also taking a bite out of mcdonald's business. the fast food giant had a weaker-than-expected second quarter profit as a stronger dollar cut into profit margins. as diane eastabrook reports a growing global appetite for big macs, egg mcmuffins, and fruit smoothies looks dicey for the rest of the year. >> reporter: mcdonald's is not used to disappointing quarters, but that 's exactly what it served to wall street today. in the second quarter the company earned a $1.32 a share. thatas $3 low the same quarter last year. and a nickel below analysts estimates. the burger giant said cash- strapped consumers in nearly every market around the world didn't eat out as much as they had been. analysts say this is very unusual for mcdonald's. >> in the past there have been periods where you might see weakness in three or four of their markets at any given time, but it's been at least several decades since we've seen a global slowdown that is having an impact on every one of their major markets. >> reporter: mcdonald's faces a litany of problems that could affect i bottom line for the
remainder of the year. a strong dollar that lessens the value of overseas sales. cut-throat competition from rivals. and rising commodity costs. the company says it's hedged its food costs for several months. still hotavee says those positions probably won't extend out far enough to cover the impact of the current drought. >> i think the company could be looking at a situation where costs start to weigh down results, but that's not a situation that is unique to mcdonalds. >> tom: diane eastabrook joins us now in chicago. it may not be unique for mcdonald's to face the threat of higher cost, diane, but how exposed is mcdonald's to the rising food costs from the drought? >> the company said on the conference call it's about -- hedged out until about the middle of next year. the problem is, beef prices. that's the big wildcard. right now, we're seeing farmers liquidating herds because they can't afford to feed them because of high grain prices. so, we could see a depression in beef prices in the short run,
but in the long run, those prices are going to go up, as the farmers build back the herds. that could take another year to 18 months. so, it's hard to say just how far out into the future mcdonald's is hedged on beer. >> once the prices get into the pipeline, they wind up -- may wind up showing up on menus in local neighborhoods. how much ability does mcdonald's have to raise prices to maintain profit margins? >> that could be tough because there's a lot of competition out there. you have seen wendy's and burger king come back with promotional items and there's new competition from the boutique hamburger joints like five guys. it could be very tough for them in the particular environment to raise prices. >> tom: don thompson took over as ceo july 1st and he has been known for a couple of decades. he is the charge of the value menu and the new smoothy. what is the early read on his strategy. >> he says the company is going to continue to push the strategy it is pushing. is doing very well with the value meals and it is going to
be pushing them more in places like china and continue to roll out smoothies. the company says it's going to continue on the strategy it's been developing over the past couple of year and analysts said keep in mind what is happening with mcdonald's is not an issue of strategy it's an economic issue. it's macroeconomics, what is happening with mcdonald's is happening to a lot of other companies. >> tom: yeah, not unique to mcdonald's certainly. from chicago, is dianesterbrook our midwest bureau chief. >> susie: china has been shopping for deals, and today it announced a big one, really big. the country's giant oil company cnooc has made a $15 billion cash offer for canada's oil and gas firm, nexen.
if completed, it would be china's biggest foreign acquisition ever. nexen's energy resources stretch from oil sands in western canada to oil rigs in the north sea and the gulf of mexico. the proposed deal needs regulatory approval, including the support of american regulators. joining us with more on what this dl could mean for oil supplies, and prices, ed morse, he's managing director and head of global commodities research at citigroup global markets. so, ed, a lot of questions today about the big china deal concerns about world oil supplies and prices. is there a risk here? >> i don't think the risk is very great. they have 200,000 barrels a day production and that's a fifth of c-nook's production and compares to a global market of 90 billion barrels a day. it's a tiny amount of supply from the world perspective but it means a good deal more perhaps in terms of future
supply. >> susie: you know, there has been resistance to china buying a big oil company. we had an issue with unical in the u.s. if this opens the way for more oil deals with china what would that mean to oil supplies down the road? you just look the at it on a macro level. >> well, cnook has a deep water production offshore and growing deepwater production. the big areas of growth globally e in deep water. oil sas in canada, andhale plays in the united states. and exxon has every bit of that. so, this means that cnook is trying to -- has found a place to put in capital of the areas of production growth that are expanding. so, in that sense it's probably, you know, very good if terms of the net-positive in terms of global supplies. >> susie: let's talk just a little bit about oil prices in general. last week, we saw oil prices running up into the $90 range on tensions in iran and the middle east, and then today, as we see prices going the completely
opposite direction, down 4% to $88 a barrel. where do they go from here, up or down? >> well, this is oil two weeks into a row responding to macro issues, and what oil did, so did equities last week and this week. what's happening, really, is that we're in a relatively well supplied market that should say prices go down, but it's not a steady direction. oil is extremely seasonal commodity, oil demand is extremely high in the summer, as compared to either the fall or the spring, and we have a call in for oil prices being a little t higher throughout the third quarter than is currently the case which means that if that's the case on average, oil prices are probably going to go up before they go down. >> worst case scenario, there's a flare-up in iran. what -- there's a disruption of the supplies. where do the oil prices go? what is your worst case scenario. >> i think the worst case scenario would be a closure of the strait of hormuz.
we think it's a possibility and it's not likely to last very long. there's an incredibly big cushion underlying today's market. the cushion includes commercial stocks. commercial stocks in the oecd and the industrial countries are between 55 and 60 days of forward demand. that's a very big cushion. it's higher than the average. we have a strategic stockpile in the u.s. as to do our consumer partners in europe, and the far east and the saudis have added about 100 million barrels to inventory around the world. so, the world is really very well supplied at the moment and could withstand the shock of disruption that's of limited duration. >> susie: ed. okay. lots of good information. thank you so much we have been speaking with ed morris, managing director and head of global commodities research at citigroup.
>> susie: get ready to pay more for air travel. airlines announced today a new round of fare hikes. over the weekend, delta, american, u.s. airways and jetblue all boosted ticket prices by up to $10 per roundtrip ticket. the moves follow a fare increase by united. it marks the fourth fare increase this year for the major airlines. and tom, even southwest airlines has signed on, industry watchers say that means the price hike will stick. but no price hikes here on wall street. a roller coaster day in the markets, lots of selng, but things stabilized by the close. >> tom: let's get going with tonight's "market focus."
>> tom: the major u.s. stock indices fell for the eighth straight monday. the longest losing streak for mondays in a decade, but the loses could have been worse. the opening print for the s&p 500 pointed to a significant drop, but the selling pressure lessened as the day wore on. the index finish down less than 1%. volume was 742 million shares on the big board. just under 1.6 billion on the nasdaq. all ten major stock sectors were lower. the heaviest losses were in the materials sector, down 1.5%. consumer discretionary, down 1.3%. and health care falling 1.1%. driving the materials sector lower today was a trio of industrial metal stocks, reflecting the worries about china. over the wke, a regional chese banking offial said he expected the chine domesti demand to remain weak. titanium maker allegheny technologies fell almost 4%.
iron ore producer cliff's natural resources dropped 3.6%, to a new 52-week low. copper and gold miner freeport mcmoran fell 3.4%. the market tone wasn't helped by mcdonald's disappointing earnings report. as diane reported earlier, earnings were hurt by a stronger u.s. dollar cutting into overseas profits. it was the biggest percentage loser among dow industrial stocks, falling 2.9%. th stock w at all-time highs juary, over $102 peshare. it's below $90 tonight. after the market close, the focus was on a weak outlook from for-profit education firm devry. new student enrollment is expected to drop as costs continue rising. devry stock was down about 1% during the regular session, and fell 20% from this closing price after the warning tonight. that puts the stock around $22. despite today's sour market mood, we saw plenty of monday merger announcements.
e ggest was the chinesplay for canadian energy company nexen. nexen shares stock shot up more than 50%. china's cnooc has offered $27.50 per share. in the utility energy industry, n.r.g. has offered to buy fellow independent power producer genon for $1.7 billion in stock. the buyer n.r.g. was up 8%, while the target, genon, shot up almost 26%. peet's coffee has an offer to go private for almost $1 billion, or $73.50 per share. shares of peet's jumped 27.8%, closing justelow theuyout offer. the bidder is the same german investment firm that owns perfume maker coty, which was unsuccessful in its effort to buy avon earlier this year. two regional railroads want to get on the same track. genesee and wyoming has offered $1.4 billion in cash for rail america. genesee shares were up a fraction. rail-america jumped almost 10% to a new high, closing just below the $27.50 per share buyout offer. the bond rally remains on the tracks, as investors continue
buying u.s. government i.o.u.s. it was pushed the interest rate on the ten year government note down to 1.44%. that is a new low r elds. the five most actively traded exchange traded funds were lower. the emerging markets e.t.f. saw the biggest drop, down 2.6%. and that's tonight's "market focus." >> susie: the debt ceiling, and reports, that fight cost tax payers over $1 billion.
the government accountability office issued its report today, showing the budget brinksmanship spooked investors, and it believes that uncertainty on wall street, lead to a $1.3 billion jump in government borrowing costs. another budget fight, has defense contractors in the crosshai. new uncertainty over the federal budget could soon create big costs for defense contractors. defense companies have outperformed the market this year and when the major contractors report their as darren gersh reports. >> reporter: companies that build weapons have to be pretty good at threat assessment. which is why defense contractors have been moving quickly to prepare for their biggest enemy: budget cuts. >> they don't know exactly what program's going to be cut, they don't know the exact size of the downturn, but they know there is going to be pressure ahead and to prere for that, they are trimming their expenses. they are nipping and tucking wherever they can. and in the short term that is going to translate into better profitability. >> reporter: that's been the pattern for a few quarters and because of share repurchases, reiner expects earnings per
share at big contractors will show 5% to 10% increases in their second quarter reports this week. but the key question is whether congress allows an automatic 10% cut in defense spending to take effect in january. in washington, that cut is known as sequestration. >> in all likelihood, what will ppen is that milary persnel will not be cut under sequesatio but everyin that remains-- including the accounts, the weapons accounts that matter most to the defense industry -- will see a 13% reduction in one year. then we'll stay at that lower level in subsequent years. >> reporter: the most likely outcome of the sequester is that congress finds some way to delay the cuts while some kind of agreement is worked out. no one knows what that will be, but based on what happened after past wars, it's a good bet more defense cuts are on the way. >> we might see a steady decline in defense spending for the rest of this decade. and itould end up being at the end of the day, a larger cut than sequestration would impose. it would just happen more
gradually over time. >> reporter: for all the bad news about defense, why is the sector holding up relatively well? it turns out defense companies are also defensive stocks. >> defense in the context of all the other sectors out there, doesn't look that bad. at least it has a couple of things going for it. it doesn't have any exposure to europe in any meaningful way. and it's not exposed to the overall troubles of the global economy. >> reporter: and for all the talk of budget cuts, the u.s. still spendsore on defse than the next 15 biggest countries combined. darren gersh, "n.b.r.," washington. >> tom: there's a wor being fought with keystrokes and not firepower. the battles have names like dns and maraposa virus. it's about trillions of dollars done in business over the internet. we are looking at cyber security beginning with the business of protection. that's tonight's word on the street, troekz.
greg, what is the opportunity herend the growth potential in terms of online security? >> well, for security software stocks, the market was about $18 billion in 2011 and that was up 7.5% from gardner from the prior year. firewall stocks companies like checkpoint and sourcefire, that market was $6 billion in 2011 and it was up from the earlier year as well. >> tom: so, certainly seeing growth despite global economic worries. we'll begin with what's as close to a houhold name symantec better known for the norton anti-virus. the stock has been clobbered since april when it lowered its guidance. >> shares of syamantec is down over date. a lot of that is over worries about the p.c. environment and you buy a computer and it has norton attached to it.
it's a cheap stock trading at eight-and-a-half times next year's sales and less than a more kate multiple. maybe it's worth buying here wh we learn the enings xt week. checkpoint soware based in israel, chkp, the ticker stim bowl down from the april highs has seen a pop rately after better second quarter earnings and $1 billion stock by-back plan in the next couple of years. >> the stock is down 10% nor the year and trades at about a market multiple of about 13-and-a-half times next year's earnings. the israelis do security very well and comes out of their i guess you call it their military technology complex. so, we are going to see the checkpoint does. once again, it's a very big-time for securit stocks and checkpoint is one of the leaders. >> tom: i mention a firewall company and its among the largest out there. among the smaller someones a company called sourcefire. fire, the ticker symbol. a billion dollar market cap but strong growth here. could this be a potential consolidation candidate, buyout candidate? >> well, sourcefire is pretty
hot. it's about -- up about 40% year to date. someone is going to buy it, they're going to pay up for it. i think it trades close to 50 times next year's earnings. i'm not sure if anyone is going to pony up for it yet considering the valuation. maybe let it come back a little bit. >> tom: lots of valuation arguments from cheaper symantec on the longer side. do you own any positions yourself, greg? >> i do not. >> tom: all right. we have greg greenberg with thestreet.com tonight. >> susie: tomorrow on "n.b.r." will apple be wall street's darling again? we'll find out as the tech giant issues second quarter results. netflix also scheduled to report tomorrow. we'll see if the video service was able to boost its subscriber base. and finally tonight, there is life after the c-suite at yahoo. scott thompson has a new job. he's the former yahoo c.e.o., ousted back in may after the yahoo board was confronted with evidence he mis-stated his education. thompson is now c.e.o. of "shop- runner".
it's an online members only shopping site, that works with top retailers to offer free shipping and special deals. as you may remember tom, thompson has a lot of experience in e-tailing, before yahoo, he ran ebay's pay-pal unit. >> susie: that's nightly business report for monday, july 23. have a great evening everyone, and you as well tom. >> tom: goodnight susie, we'll see you online at: wwwbr.com and back here tomorrow nht. "nightly business report" is brought to you by: captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org